Context: Foley & Lardner patent attorney Eli Mazour produces the Clause 8 podcast series on patent law and the overall patent ecosystem.
What’s new: In the latest edition (Spotify link), Mr. Mazour interviewed Via Licensing Alliance President Heath Hoglund. The conversation covers the balance between licensors and licensees and how Via LA acts as a bridge between them, the Via Licensing and MPEG LA merger two years on, and the challenges of launching a new pool program successfully, with Mr. Hoglund having navigated both sides of the licensing equation (he was previously head of IP & standards at Dolby).
Mr. Heath describes Via LA as a “broker” that saves licensors and implementers from the “terribly inefficient” reality of having to reach licensing agreements with at least 50 different companies in each and every audio, video, and charging standard. “We’re a value-add to both licensors and licensees,” he says.
When asked what makes a patent pool work, Mr. Hoglund breaks it down as follows:
- The underlying tech must be useful and obtain some reasonable market adoption;
- Have the critical mass of the licensors – doesn’t need to be the majority but does need to be a significant part of them;
- Royalty rate has to be something the licensors and licensees are equally happy about;
- A significant licensee who wants to support a pool solution. Once you have them, this will start generating revenue. With revenue, you can attract more licensors;
- If the significant licensee isn’t an option, you need to have licensors willing to undertake meaningful enforcement activity; and
- A really talented pool admin.
The latter is where Via LA comes in, he adds, jokingly. Patent pools more generally address the concern around risks of some kind of enforcement that results in an adverse judgment that is a very significant royalty or damage reward.
He believes organizations such as LOT and RPX exist because there is an ongoing concern about clearing risk. “But a pool is a positive way of addressing that issue because it creates a positive place for a small implementer or patent owner to be able to go and monetise in an easy way rather than get litigation finance to monetise their assets – it’s not perfect but it attracts,” he says.
Striking the perfect licensor/licensee balance
And what do licensors get out of it? Mr. Hoglund notes that some companies, such as Qualcomm, prefer to do their own thing:
“They have the infrastructure and the abilities.”
But for other major licensors, such as Dolby, the business model is such that they want to be supportive of an industry ecosystem. That company in particular has relationships with manufacturers and content creators, and they are a consumer-facing brand: “So they want to participate in pools because it makes it easier to adopt the technology if they know they can get a convenient license for it.”
For Mr. Hoglund, an important indication of success is having a licensee in the room when you start a new program. He believes it strikes a better balance:
“I have little sympathy for the implementers who complain about not having influence on the outcome if they didn’t participate in the first place.”
The ticket to entry into any room that discusses ongoing or new Via LA programs is owning relevant IP – that means any licensor or licensee who owns relevant patents.
However, as Mr. Mazour points out, implementers still have a very convoluted view of patent pools. Mr. Hoglund says he doesn’t fully understand why some don’t even want to have conversations – but he encourages any implementer who owns patents to be present in those discussion rooms:
“For me, that is one of the best ways to have knowledge and influence over what is going on in a pool.”
Of course, for some implementers, the issue lies in the cost. But patent pools are still better than striking individual deals with 50-plus companies, Mr. Hoglund says. While some of Via LA’s have been successful, many don’t get 100% aggregation – but taking a pool license that covers 45 out of 50 companies is still better than the alternative, he says.
When it comes to setting rates, the company focuses on the value of the underlying technology. It also conducts some modelling, aiming to find a balance between a rate that is high enough to make a profit and one that will see licensee adoption. Otherwise, the higher the rate, the longer it takes to drive licensee adoption. “You can’t just model a higher royalty rate – you have to see how the rate affects adoption over time,” Mr. Hoglund comments.
Via LA follows two key principles:
- Transparency: all rates are published on the website. In the past, MPEG LA also always had an MFN clause in its licensing agreements. This transparency is attractive to implementers and Via LA has had a lot of success because of it.
- Everyone pays the same: every implementer pays the same, even if they have “caused a lot of trouble”.
But of course, despite these principles, many implementers continue to hold out. In these scenarios, licensors often act on their own in enforcing their patents. But, for those who prefer not to enforce, Via LA has a variety of incentives/rewards:
“If there is an unwilling licensee – and a particular licensor enforces against them, they could get all or a significant part of the past practice if that company takes a license to the pool.”
Licensors also get litigation credits, legal fees, or – in the case of German SEP litigation – financial bonds, if they are willing to enforce their assets.
‘Come and talk to us, we’re a lot of fun’
One thing that Mr. Hoglund learned during his time at Dolby on one side of the so-called “bridge”, is that it is okay to make a wrong decision every once in a while, so long as it can then be corrected. One pool Dolby participated in had a very high threshold for making changes to the program – so high it required that any decision made was unanimous.
“Can you imagine how difficult that is?” he says. “So now, as long as the decision is done quickly, it’s better than no decision happening for a very long time.”
Now, speaking from the “bridge” point of view, one thing that Mr. Hoglund says he was surprised about was how long it takes to integrate two totally separate organisations into one. While Via Licensing’s merger with MPEG LA “totally worked” (largely because they had a similar culture and philosophy), the merged unit is still dealing with IT systems and “getting stuff ironed out”.
The merger made sense and has been a huge victory though, according to Mr. Hoglund. Via had a lot of success with video programs, while MPEG had the same in audio and had also done the groundwork for a lot of potentially effective programs, which had yet to take off commercially. “You wouldn’t believe how long it takes to start a new program,” he says, “so we saw it as an opportunity to really drive some pools forward.”
When Mr. Mazour asks whether there are plans for further such growth, Mr. Hoglund says he doesn’t “see any immediate opportunities”. But more generally, Via LA’s (like that of most patent pool administrators) desired outcome is for its pools to be a one-stop solution – so the less pools in a market the better.
And, he reiterates, the administrator wants implementers to help design new programs because it needs more balanced solutions. “We’re easy to deal with – at least I hope that’s the market perception,” he says. “If not, come and talk to us, we’re open.”
Pointing to the company’s bi-annual summits, during which the company hosts licensors for a week of discussions for each of its programs, Mr. Hoglund notes that this makes it easier to start a new program because everyone is in the room to talk about it if they want to.
“And we are a lot of fun,” he adds, noting that during their annual summits in San Francisco, they also have a pool party. “No one has been pushed in yet,” he laughs.